Federal transfer payments to the provinces – specifically equalization – became an issue during the first week of the election campaign. Unfortunately, it was not in a good way for provinces like Nova Scotia.
There are many reasons why citizens of provinces like ours should expect the federal parties to explain how they are going to fix the damage to the transfer system caused by the Harper government. The latest evidence of that damage was last month’s report by the Parliamentary Budget Office (see post of July 29) projecting a grim long term outlook for provincial budgets unless there is an increase in federal health transfers. That report follows earlier analysis from the PBO and other sources demonstrating that since 2007 changes to equalization and health and social transfers have curtailed overall transfers while skewing them to benefit the larger and wealthier provinces. However, instead of a debate about that, the early days of the campaign have seen the initiative being seized by those who would make worse the damage done by the Conservatives.
That’s thanks to Saskatchewan Premier Brad Wall, Stephen Harper’s main (and perhaps only) ally among provincial premiers. Wall, touted by some as a possible successor to Harper as Conservative leader, used equalization to grab some headlines last month. In the run-up to the annual provincial premiers’ conference he expressed his pique at the premiers of Ontario and Quebec who are less than enthusiastic about having the Energy East pipeline cross their provinces. “Maybe we need to have equalization payments start flowing through a pipeline in order to finally get one approved through Central Canada,” was his catchy one-liner.
That aggressive approach was par for the course for Wall, who had the good fortune of becoming Premier in 2007, just as booming potash and fossil fuel royalties were making his province ineligible for equalization payments. Since then the nouveau riche Wall has been operating as a fifth column for Harper within provincial ranks, doing his best to prevent the premiers from speaking with a unified voice on transfers. He was at it again last week, giving a series of media interviews from his Regina base to promote his ideas for changing equalization. The most provocative notion is to cut the $17-billion cost of the program in half, using the money saved for infrastructure and/or tax cuts which would presumably go to all provinces on a per-capita basis.
An across-the-board 50% cut would be tough on a province like Nova Scotia. If all of the “savings” went to infrastructure, we would see our equalization transfers reduced by some $900 million, in exchange for about $225 million in infrastructure money. However, Wall seems to have something more complex in mind, a tweaking of the formula to take into account the benefits residents of certain provinces – notably Manitoba, Quebec and Ontario – supposedly receive as a result of their hydro-electric resources. Some experts have suggested that those benefits – in the form of below-market rates to residents – should be better reflected in the equalization formula, thus reducing the amount paid out.
No one has ever shown that factoring in hydro rates in those provinces would produce anywhere close to the $8.5 billion in cuts to equalization bandied about by Wall. But it probably doesn’t matter whether Wall has a coherent plan. His intervention served it’s purpose – framing the transfers debate in a way that suits Harper and his friends on the right, while making it harder for those who would put on the campaign agenda reforms to equalization and health and social transfers that recognize the different needs of the various provinces.
The right wing media pundits were quick to respond to Wall’s call for debate. Don Cayo, a former functionary at the Atlantic Institute for Market Studies, now a columnist for the Vancouver Sun, hailed Wall’s efforts to examine a system “that has morphed into handouts based on an arcane formula that capriciously boosts or drains provincial revenues without regard to need, (partly true) that fosters waste,(unproven) that rewards provinces for continuing to lag,(bull) and that often leaves the recipients better off than the donors.” (more bull) The Globe and Mail’s John Ibbotson couldn’t match such bravura, but in what passes as hard-hitting analysis in Canada’s national newspaper, wondered whether “every one of the equalization program’s $17-billion (is) being spent in the best possible way, in the national interest, with the least possible amount of waste?” (That’s a great question that will keep accountants and others busy for years. For openers, how about as an example of waste we throw out “whatever share of equalization goes into paying university presidents full salary after they retire?”)
The only counter to Brad Wall to appear in early coverage came from our own Stephen McNeil whose reported response was more truculent than helpful. Questioned by Canadian Press, he said of Wall: “He looks for an opportunity for a headline any chance he gets.” McNeil, the pot, then went on to lament that the kettle, Wall, “doesn’t help the national debate.” Idiom aside, McNeil not only didn’t help the debate, he missed an opportunity to reframe it by moving from defensiveness about equalization to assertiveness about the need for a transfer system that’s fairer to Nova Scotia and the Maritimes. For the record:
- Between 2006 and 2015, under the Harper government, on a per capita basis major transfers to the provinces went up 44.6% nationally. The Maritimes were well below the national increase at 29.6% for Nova Scotia and just 22.2% and 21.6% to PEI and New Brunswick respectively;
- This election year the national per capita increase in major transfers (health, social programs and equalization) is 3.5%, but in the Maritimes the average increase barely exceeds 1.0% per capita.
There are definitely problems with the fiscal transfer system, but if politicians in this part of the country continue to leave the definition of those problems to Brad Wall and his ilk, their negative impact on our province’s ability to provide acceptable levels of public services at reasonable rates of taxation will only get worse.